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Weak Game Sales Are No Problem For This Stock

Kapitall ,

Console and video game-makers slumped for all of 2012, but 2013 could be a renewed start. In the immediate term, the sector will need to overcome a chronic decline in overall sales. In December 2012, NPD Group reported a 22% decline in game sales for the month, and a 22% drop in sales for 2012. The overall sector may be dropping, but this only means that the strongest will survive. [Related: Infographic: Is The Console Dying?]

In the gaming sector, this will mean few titles capturing the largest sales. Game-makers behind these titles will be the companies to watch.

Activision’s (ATVI) Call of Duty: Black Ops II was the best-selling title in 2012 and in December. Modern Warfare III was also in the top 10. When it was launched, Black Ops II sold $500 million worth in the first 24 hours of availability.

In December 2012, the top 10 titles were:

1.     Call of Duty: Black Ops II (X360, PS3, Wii U, PC) – Activision Blizzard  

2.     Just Dance 4 (X360, Wii, Wii U, PS3) – Ubisoft (UBSFY)

3.     Halo 4 (X360) – Microsoft (MSFT)

4.     Assassin's Creed III (X360, PS3, Wii U, PC) – Ubisoft

5.     Madden NFL 13 (X360, PS3, Wii, PS Vita, Wii U) – Electronic Arts (EA)

6.     Far Cry 3 (X360, PS3, PC) – Ubisoft

7.     NBA 2K13 (X360, PS3, Wii, Wii U, PSP, PC) – Take-Two (TTWO)

8.     Skylanders Giants (X360, Wii, PS3, 3DS, Wii U) – Activision

9.     New Super Mario Bros. 2 (3DS) – Nintendo (NTDOY)

10.   FIFA Soccer 13 (X360, PS3, Wii, PS Vita, 3DS, Wii U, PSP) – Electronic Arts

Selling a winning title does not imply the stock is also a winning investment. Large-budget games also face moderately higher longer-term risks: consumers could grow bored of a title. Inadequate research and development in the right features could contribute to weakening future sales.

For 2012, the top titles were:

1.     Call of Duty: Black Ops II (X360, PS3, Wii U, PC) – Activision Blizzard

2.     Madden NFL 13 (X360, PS3, Wii, PS Vita, Wii U) – Electronic Arts

3.     Halo 4 (X360) – Microsoft

4.     Assassin's Creed III – (X360, PS3, PC, Wii U) – Ubisoft

5.     Just Dance 4 (Wii, X360, Wii U, PS3) – Ubisoft

6.     NBA 2K13 (X360, PS3, Wii, PSP, Wii U, PC) – Take-Two

7.     Borderlands 2 (X360, PS3, PC) – Take-Two

8.     Call of Duty: Modern Warfare 3 (X360, PS3, Wii, PC) – Activision

9.     Lego Batman 2: DC Super Heroes (Wii, X360, DS, 3DS, PS3, PS Vita, PC) – Warner Bros. Interactive Entertainment

10.   FIFA Soccer 13 (X360, PS3, Wii, PS Vita, 3DS, Wii U, PSP) – Electronic Arts

Analysis: EA relies heavily on its sports games franchise, but consumers so far continue to enjoy the new releases, year after year. EA improved its FPS – first person shooter – segment with the release of Battlefield 3. Despite the successful release, Activision is the leader in this segment with the Call of Duty franchise.

Take-Two could be a value play. In November 2012, it was revealed that Carl Icahn owned 10.7% of the company. For 2013, GTA V, or Grand Theft Auto V, will drive excitement around the company.

Microsoft shares are not performing as well for a company who sold $220 million worth of Halo IV within 24 hours of launch, back in November 2012. The company recently acquired R2 Studios, a software firm that makes media-sharing for the home. Microsoft’s Xbox will be a central part of the company’s strategy to more tightly integrate media across its other platforms.

Conclusion

Microsoft is the company to watch more closely. While EA and Activision could make sharp moves, helped by strong sales for its hot titles, Microsoft is in more businesses. Investors could be more interested in the company when more information about XBOX 720 is released, with coverage picking up later this year. Sony (SNE) could also reveal more details on the Playstation 4 (PS4), which would bring more attention to Microsoft.

Written by Kapitall's Chris Lau. Disclosure: Author holds a long position in Electronic Arts (EA).